EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The Continued Success of Code Sec. 179D

The Continued Success of EPAct Section 179D

IRC section 179D is extremely successful tax legislation based on the
utilization of this provision by commercial building owners and government
building designers. The legislation is essentially self-tax-funded: The
required energy cost reductions result in a measured decrease in operating
costs for the commercial property owners and result in reduced operating costs
for taxpayer-funded government buildings. Commercial property users end up with
increased taxable income from the energy savings. Government organizations can
reduce budgets and lower their tax collection requirements.

The EPAct Section 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, commercial property
owners making qualifying energy-reducing investments in their new or existing
locations can obtain immediate tax deductions of up to $1.80 per square foot.
If the building project doesn't qualify for the maximum EPAct Section 179D
$1.80 per square foot immediate tax deduction, there are tax deductions of up
to $0.60 per square foot for each of the three major building subsystems:
lighting, HVAC (heating, ventilating, and air conditioning), and the building
envelope. The building envelope is every item on the building’s exterior
perimeter that touches the outside world including roof, walls, insulation,
doors, windows and foundation.

Most Common Commercial EPAct Users

Industrial Buildings and Warehouses

Warehouse owners and manufacturers in jurisdictions around the country,
particularly in the major distribution center market such as Ohio, Georgia,
Illinois, New York, New Jersey, Pennsylvania, and Texas, to name a few, have
all taken advantage of EPAct 179D. Warehouses and manufacturing facilities can
reap the benefits of EPAct 179D because they are typically simple spaces that
can be retrofitted with ease, as they have less complicated energy demands than
many other commercial building categories. These are large structures that tend
to use the legislation to support energy-efficient lighting and natural gas
heaters and roofs, often to prepare the property for solar photovoltaic (solar
P.V.) installations .

Office Buildings

Office building owners and managers everywhere from large cities like New
York City to smaller metropolitan areas like Charlotte use EPAct 179D to help
finance LED lighting projects and energy-efficient HVAC upgrades, including
chillers, thermal storage and demand control ventilation. While these buildings
are more complex than warehouses or manufacturing facilities, the energy
savings potential is perhaps greater than any other building category because
of the long hours of electrical demand and air conditioning/heating. The
enactment of energy benchmarking laws in several key jurisdictions including
New York City, San Francisco, and Washington, D.C. has prompted many office
building owners to make their properties more energy efficient in order to
attract and retain increasingly energy-savvy commercial tenants .

Retail/Supermarkets

National retail and supermarket brands are typically able to obtain
chain-wide benefits from qualifying energy reduction strategies that can be
replicated on similar store formats . In the supermarket context, refrigeration
and freezers are the biggest energy-cost users, which combined with frequently
specialized lighting demands makes for very high energy bills. This has spelt
opportunity to supermarket owners and operators, who can now use cold-resistant
LED lighting to present their merchandise to customers. Even in the
non-supermarket retail context, LED lighting has significantly reduced many
stores’ energy expenses while giving them optimal lighting to showcase
their products.

Hotels

Since the lowest point of the economic downturn, the domestic hotel industry
has restructured and is using the legislation to address deferred upgrades to
their buildings’ systems . This restructuring has been spurred on by the
industry’s favorable tax treatment under EPAct, whereby the underlying
rule set under Section 179D gives hotels and motels the maximum tax deduction
for merely meeting the current building code requirement for lighting for that
building category. This opportunity has prompted national hotel and motel
chains to take advantage of the EPAct incentives on a franchise-wide basis.

Car Dealers

Car dealerships use the benefits of EPAct 179D to install LED showroom
lighting and energy-efficient lighting in the service bays. Dealer numbers have
decreased from 32,000 to 18,000 because of the economic downturn, resulting in
concentrations of multi-branded, financially stronger dealer networks .

Parking Garages

Parking garages are one the most cost-efficient EPAct 179d building
categories since nearly all of their energy expenses derive from their lighting
systems. EPAct is a very important incentive for garages, which typically
operate in high electric cost property dense areas. With much less involved
planning than almost every other building categories, parking garage owners and
operator can replace their old, energy-inefficient lighting for new LED,
induction, or fluorescent lighting .

Most Common Government Building Design Categories

K-12 Public Schools

Kindergarten-12th grade public schools represent the single largest EPAct
179D category. There is a K-12 public school in every community in the country
and K-12 school energy reduction helps reduce every community’s tax
burden. At the same time, many school designers, parents, and administrators
have placed a high emphasis on the role energy-efficient building systems play
in the health and wellness of young children. Typically, there is no
out-of-pocket expense to the taxpayers in the community for retrofitting their
buildings either; Energy Service Companies (ESCO’s) pay for the up-front
installation costs and are then reimbursed by the schools’ energy
savings, making energy retrofits at public schools a win-win for everyone
involved.

Federal Buildings

The federal government is the largest building owner and energy user in the
country. In recognition of this fact, the federal government has measurable
building energy reduction goals and has created several pieces of legislation
mandating that all federal buildings undergo energy retrofits with various
deadlines. When it comes to retrofitting federal buildings, the energy cost
savings opportunities are huge.

Military Bases

In the course of supporting multiple wars the military has been making
extensive use of Forts, Naval Bases, and support facility's in the U.S. and in
U.S. territories. As these facilities are typically some of the largest and
most complex of any properties in the county – they often function as
cities unto themselves – they present exceedingly large energy and tax
saving opportunities.

State Buildings

In addition to the many federal buildings around the country, every state
has their own buildings to support their administrative, educational, judicial,
transportation, and infrastructural need. In every state, there are sizable
universities, office buildings, transportation hub, and courthouses that have
been taking advantage of EPAct in order to reduce energy expenses. Of these,
the largest EPAct beneficiary category has been state universities and
community colleges.

Airports

Airports have been major EPAct beneficiaries particularly for parking
garages and terminals. Development in this category has been guided by the
Aerotropolis principle. The term “Aerotropolis” was coined by Dr.
John D. Kasarda, Director of the Kenan Institute at the University of North
Carolina at Chapel Hill. Dr. Kasarda describes the development as follows:
"airports will shape business location and urban development in the 21st
century as much as highways did in the 20th century, railroads in the 19th and
seaports in the 18th." According to the Aerotropolis principle, infrastructural
growth has been and will continue to center around access to major airports. In
other words, where airports are involved, there are potential EPAct tax savings
available to a host of building categories .